10/2/14 HUB Zones


Back in the 90’s, defense contractors hit on a stroke of genius.  They’d select subcontractors located in nearly every single one of the 435 congressional districts.
This helped them when lobbying for billion dollar weapons systems.

The federal government has taken a page out of that book.

Few Americans have heard of a HUBZone – a Historically Underutilized Business Zone.  But they impact billions of dollars in federal spending.

Here’s the theory.  Some regions of the country have been left-out when it comes to federal contracts.  By designating regions as HUBZones, and companies as eligible to receive HUBZone contracts, government can divvy-out contracts and help local businesses.

Now, maybe its reasonable for a federal agency – when faced with identical $100 million proposals – to award one to an underserved area.

But, here’s the reality.  There’s no connection between whether an area is economically depressed and designated as a HUBZone.  Some of the Washington, DC suburbs are designated HUBZones.

In addition, a HUBZone company can charge an additional 10% for its product or service.  So, a federal agency would be expected to award a $110 million contract to a HUBZone company when competitors are proposing $100 million.

The HUBZone program was created in bipartisan fashion in 1997 by a Republican Congress and a Democratic President.

Now, members of Congress lobby to have their districts designated as HUBZones.  Eventually, every single district would profit from government largesse.  Prompting Congress to increase spending.

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